Bitcoin Network Sees Fourth Straight Downward Difficulty Adjustment
Bitcoin’s mining difficulty is a measure that indicates the amount of effort needed to mine blocks and verify transactions. It dropped for the fourth consecutive weekend.
According to data from BTC.com, difficulty dropped by 4.8% at block 691.488, after falling by a record 28% last July 3, according the data. The difficulty rate is now at an 18-month low, 13.67 trillion. This is down 45% from mid-May’s peak of 25.05 Trillion.
According to Block the network experienced four consecutive drops in difficulty since 2011.
To maintain a block time target of 10 minutes, the bitcoin difficulty is automatically adjusted every 2,016 blocks. At the moment, the reward for mining blocks or approving transactions amounts to 6.25 BTC.
When the blockchain’s computing power drops, the time it takes to mine new blocks increases. The programmed code kicks lowers the difficulty to attract more miners, and restores the average block time of 10 minutes.
“Since May the blockchain has been running slowly. The average block time was 1,000 seconds earlier this month. They should have been around 600 seconds. Charlie Morris, chief investment officer of ByteTree Asset Management said.
The blockchain had to be faster and easier to mine in order to correct this. Morris stated that the last four adjustments were downward and that it now appears like the blockchain has returned to normal.
Bitcoin mining is similar to perfect competitors, which is a hypothetical market structure in which demand and supply forces interact freely and where firms’ decisions can be predicted.
In the second half May, the difficulty rate was over 25 trillion. It has been declining ever since due to China’s crackdown against cryptocurrency mining. In mid-April, the price peaked and the mean hashrate hit a two year low of 61.22 EH/s in June. According to Glassnode data, it has risen slightly to 96 EH/s.
As evidence suggests that China-based miners could soon move to the U.S. or Kazakhstan, the dramatic drop in difficulty and hashrate could be temporary.
“This is a one-off phenomenon, which means most of this mining power won’t return. Before you know it MORE than 900 coins per daily will be mined because the hash rate will hit network after the difficulty decreases,” Ben Lilly, a cryptoeconomician at Jarvis Labs, stated in a Substack posting last month.
Although the price of cryptocurrency has been trending in the same direction as before, the drop in mining difficulty has not affected its value. Some traders fear a bigger drop in prices as prices closed Sunday at $34,000 (UTC), marking the lowest weekly close this year. As of press time, bitcoin was changing hands at close to $31,300.